I want you to take a look at these trades below…
Try to figure out what they all have in common.
If you guessed they were all low-odds bets, that’s the answer I was looking for. You see, those trades that hit the tape last week were in deep out of the money (OTM) options in Tesla Inc (TSLA) and Apple Inc (AAPL).
They were so far out of the money, there was more than 95% chance those options would expire worthless — a “sucker bet”.
If you were able to spot these trades AHEAD of time and knew a risk-defined strategy to use…
You could’ve taken advantage of those sucker bets.
Let me show you how it all works.
Their Loss Can Be Your Gain
Take a look at those trades again…
There was one key indicator I was looking at here…
The % Chance OTM. This lets me knows the odds of a specific options contract expiring worthless by the expiration date.
If I’m a “smart” options buyer, I would only look to put my money behind trades when this number is low. You see, the lower the % Chance OTM, the better for buyers.
I don’t know about you, but I certainly wouldn’t put my money behind a trade if I knew there was more than a 95% chance I could lose my money. In fact, I would probably look to take the opposite side of that bet.
When the % Chance OTM is high, options sellers can actually have a statistical advantage and minimize their risk if they use the right strategy.
When it comes to selling options, you need to understand the risks involved and why it’s not wise (in my opinion) to sell options outright. That’s what can blow up accounts.
I actually utilize a strategy that plays the odds.
What do I mean by that?
Well, in simpler terms, I only want to put my money behind bets in which I have an edge. With this strategy, I don’t have to be right on the direction and I can still make money.
For example, let’s say I saw those AAPL $610 Aug. 28 calls come across my screen.
I could’ve taken the opposite side of those calls (sold calls). Now, that doesn’t mean I’m bearish on AAPL. That just means I don’t think it can go to $610. To hedge my position, I would purchase further out of the money calls.
That way, I minimize my risk.
If AAPL expires OTM (which it did), I could’ve collected all the premium.
It works similarly for the puts.
For example, someone purchased $1,830 puts in TSLA that were set to expire in a matter of days.
If I didn’t think TSLA can break and stay below $1,830 by the expiration date, I could’ve sold those puts and purchased deeper OTM puts to hedge my position.
That way, if TSLA closed above that area (which it did) I would’ve collected all the premium.
To be honest with you, if you know what to look for, I believe it’s easier to spot the “sucker bets” and take advantage of them than trying to come up with your own ideas.
If you want to develop the skills to become a better options trader, then you’ll want to check this out and discover how to take advantage of the sucker bets.